Anglo Asian Mining: a low cost and highly cash-generative gold miner

18th Jul '20 by AnonymousUser3343

21 comments 2721 reads

Anglo Asian Mining (LON:AAZ)

Share price: 130.50p

No. shares: 114m

Market cap: £149.28m

During the past week I have added Anglo Asian Mining (LON:AAZ) a gold, copper and silver producer in Azerbaijan with a range of assets from exploration to full production. Their flagship location is the Gedabek contract area which is a 300 square kilometre area in the Lesser Caucasus mountains in western Azerbaijan. The Company has a second underground mine, Gosha, which is 50 kilometres from Gedabek. Ore mined at Gosha is processed at Anglo Asian's Gedabek plant.

Anglo Asian Mining (LON:AAZ) rates as a ‘Super Stock’ on the Stockopedia system, with an overall StockRank of 96, and impressively hits green on 7 out of 9 on the Piotroski F-Score which aims to identify the healthiest companies amongst a basket of value stocks through applying a set of nine accounting-based stock selection criteria.

Looking at the company performance over the past few years, Anglo Asian Mining have made huge strides and are highly cash generative, the current market cap of £149m in my opinion shows a disconnect from the forward potential and especially with the current price of gold and outlook.

Anglo Asian Mining are on a all-in cost of $591/oz (FY 19 Annual Report) putting it in the first quartile of the gold mining cost curve. With Gold price as we stand currently on $1,800, the operating margin is certainly impressive and one that will contribute considerably to the bottom line. In the recently reported Q2 (June end) update, gold sales achieved on average a price of $1,713 per ounce, which compared very favourably on a like for like basis to Q2 2019 where an average of $1,332 per ounce was achieved. Now as we enter Q3, and the gold price up again, the operating margin is looking very good indeed. Commenting on the gold price the CEO said:

"The gold price continues to perform favourably and, in Q2 2020, we received an increase of approximately $400 per ounce for gold bullion sales compared to the same period last year. With prices expected to remain at these levels, this bodes well for the future financial performance of the Company”

The company had a cash position on 30 June of $29.2 million and had no bank debt, the dividend policy is maintained, and…

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AnonymousUser3343

19th Jul '20

The latest analyst reports on the Company as listed below

Hardman and Company dated 9 June 2020

https://wp-angloasianmining-2020.s3.eu-west-2.amazonaws.com/media/2020/06/10132846/Hardman-Research-Anglo-Asian-JUNE-2020.pdf

S P Angel dated 28 May 2020

https://wp-angloasianmining-2020.s3.eu-west-2.amazonaws.com/media/2020/06/10132848/S-P-ANGEL-REPORT-JUNE-2020.pdf

Alphaflight

20th Jul '20

There is a place for ETFs (the physical ones anyway like £SSLN or £PHYS.U) but if you want a leveraged Au/Ag position (obviating call options) then buying a portfolio of the small miners is a wise move. Many of them pay dividends such as Highland Gold Mining (LON:HGM), Anglo Asian Mining (LON:AAZ),Trans-siberian Gold (LON:TSG) etc. Others are cash flow machines with gold >1800/toz (e.g. Shanta Gold (LON:SHG))

26th Jul '20

Need to be ahead of the curve on Gold producers, positioning the portfolio before the mainstream capital flows into these mining companies.

Low cost/High margin gold producers such as Anglo Asian Mining (LON:AAZ) with an all in cost of $600 should report impressive earnings in the coming quarters.

MiserableJacktPotato

I worry about:

a. Tax

b. Azerbaijan deciding, "all your gold mines are belong to us".

Seems pretty high risk, but I know nothing about this sector so would be grateful for comments

16th Aug '20

AAZ are well placed in H2 2020 and into 2021, should be some positive earnings in the coming quarter here, with such low cost production coupled with the strength of the price of gold. Also with many mainstream stocks pulling their dividends, this is obviously appealing from the income side.

Buffett is also betting on gold, in the last quarter only added one new stock to the portfolio and that being a gold miner Barrick Gold, holding worth around $565m.

-------------------------------------------

Warren Buffett traded Goldman Sachs for gold in Berkshire Hathaway’s newly revealed portfolio

https://fortune.com/2020/08/14...

28th Sep '20

Proactive Investors evening 6pm this Thursday with Bill Morgan of Anglo Asian Mining

I have just signed up, registration for this virtual event, link:

https://www.proactiveinvestors.co.uk/register/event_details/283#

Interview with Bill Morgan few days ago discussing H1.

In addition to announcing a 29% increase in the interim dividend and a possible additional special dividend due to cash generation what especially caught my attention was the negotiations with the Government to secure a new concession which would cover the 50 kilometres which is between the Gosha and Gedabek. This would be a substantial development if agreed and confirmed.

Hopefully this will be discussed further at the investors evening this Thursday.

Anglo Asian Mining's revenues rise on back of stronger gold price

https://www.youtube.com/watch?v=qRHwKJd5psw&feature=youtu.be

Rusty2

29th Sep '20

Yet the share price continues to decline, now down to around 130p.

Brilliant Leader

That will be because of the flare up between Azerbaijan and Armenia herbie. They were just gathering a head of steam going into the weekend and then the flare up of this conflict dampened the momentum. AAZ did issue a statement yesterday stating no impact to their operations, although the situation was being monitored.

In that interview with Bill Morgan referenced above, there is talk for the first time of extending the Contract Area to join up Gedabek and Gosha. That will be a huge deal if it is confirmed over the coming weeks and I don’t think Bill would have mentioned it unless he was pretty sure the extension would be granted. There is some evidence to suggest that the area in question has been shown to be a contiguous mineralisation and that under the terms of the PSA, AAZ are entitled to the extension. That said, I’m sure the discussions are cooperative and it seems they have been working towards aligning the extended concession with the terms/duration of the existing ones.

My money (literally) is on the conflict ending quite swiftly and further news in Q4 regarding the extended Contract Area (among other things). There is also the small matter of an increased interim dividend (+29% YoY) going ex-div on 8th October and the likelihood of a special dividend in Q1. On that basis, I have topped up my holding again this week. I could be wrong but I believe the risk-reward at this time is compelling.

Cheers
Simon

Hi Simon,
Thanks very much for that information, I was unaware of the conflict between Azerbaijan and Armenia.

Lloyd Garvey

I hope you are correct. The last war between the 2 lasted 6 years with over 30,000 dead. (1988-1994) No real cease fire just a stalemate at the end. Unfortunately this time Turkey backs one side and Russia the other. according to latest BBC news it is already spreading.

( I sold all my AAZ yesterday, but will re-buy if this all blows over)

https://www.bbc.co.uk/news/wor...

It is not looking too good, this has been going on since 12th July, why no mention of it in this thread?

Snowbum

It is not without possibility that we could see the type of response from Russia seen previously in the Crimea, however I'd hope that Turkey's membership of NATO would be sufficient to keep this in check...

I think it's a buying opportunity for a longer term hold.

This conflict shouldn't actually interfere with £AAZ's business however I sold out of them anyway before it all kicked off. Iran's neighbours are slowly being destabilized it seems perhaps in preparation for something. Note that the South Caucasus are a major corridor for pipelines transporting oil and gas to the world markets (the pipelines are close to Nagorno-Karabakh)...quo bono:-)

2nd Oct '20

Well, I attended the virtual proactive presentation las night, both Bill Morgan and Stephen Westhead delivered the Anglo presentation which was recorded before Stephen has to get in the air.

Conflict not affecting Anglo Asian Mining operations as per the RNS (Armenia have today says it is ready to work to a ceasefire, also reported that Azerbaijan have gained the Jabrayli-Fuzuli region, this might help them politically with claiming some gain before ceasefire)

The information and presentation again reiterated what a solid position they are in, debt fee, profitable and stacking up a very large cash plie, hence the increase in the dividend by 29%. They mentioned the impressive Q3 production figures they are seeing and were pressing on reiterating based on Q3 production and whats planned for Q4 their production target is 75,000-80,000 for the full year. Conflict not affecting operations as per the RNS. New JORC due within the month. They did mention that the findings is going to highlight an extended mine life, this would be material news if/when confirmed.

Price of gold $1910, and increasing production is a good combination, goes Ex Div on Wednesday 2.8%. Three payments likely next year.

The presenter which accused me on a question to a previous presenter like an essay, did say Anglo would take the questions and respond. I have submitted the one below.

In the recent proactive interview, you mentioned a possible new concession linking the Gosha and Gedabek assets. Can you please explain further regarding when do you expect to hear if this is possible and how significant would this be for AAZ?

Is this the only additional concession you are looking at in Azerbaijan?

Will share if/when a response arrives.

Here is a 20 minute video of the presentation last night by the Directors.

I forgot below to mention the Conroy JV also which is still on the cards.

https://www.proactiveinvestors.co.uk/companies/news/930570/anglo-asian-mining-present-at-the-proactive-one2one-virtual-forum-930570.html

4th Oct '20

Looking at the map Azerbaijan have made quite a bit of ground in taking control along the border of land which is recognised by international law as theirs.

The region Nagorno-Karabakh which is part of Azerbaijan, but is controlled by separatist is the disputed area. Do Azerbaijan fight these separatist who are backed by Armenia all the way or do they settle on gaining back a portion of land control into Nagorno-Karabakh which they have already done over the past week. Politically they can already say they have regained back some of their land.

The conflict over the Azerbaijan land recognised by international law in Nagorno-Karabakh who want independence does not affect our office in Baku or mining operations, this was again reiterated by the Anglo executive directors Bill Morgan and Stephen Westhead.

“There has been no impact on Anglo Asian's operations. Its office in Baku and operations at Gedabek continue to function as normal.”

“The reported hostilities are in the Nagorno-Karabakh region and have never affected the mountainous Armenian border area near the Company's mining and processing operations.”

The company reiterated on Thursday what a solid position they are in, debt fee, profitable and stacking up a very large cash pile, hence the increase in the dividend by 29% and planning a Q1 special dividend.

Looks likely 3 dividends next year which would be around 10% return, not bad when seeing many FTSE cut or pull dividends.

Again on Thursday they mentioned the impressive Q3 production figures they are seeing now and had set up the two egress points for the deeper grade mining starting this week.

Reiterated Thursday based on Q3 production and whats planned for Q4 their production target is 75,000-80,000 for the full year.

In the proactive interview on H1 results Bill Morgan stated a bit of non public news that they are in discussion and negotiation with the President of Azerbaijan over a new concession linking the Gosha and Gedabek assets, this is 50km, this would be major news, with the infrastructure and low cost production.

Another pre RNS slip might have been made on Thursday this time by Stephen Westhead, with regards to the due JORC and mine production years, one to watch out for.

The fundamentals are compelling, Anglo is in really great shape and excellent value in my opinion as a low cast high cash generating gold miner.

5th Oct '20

Anglo Asian Mining (LON:AAZ) dropped 20% today...a big drop! It is starting to look cheap again.

21st Oct '20

SP Angel Anglo Updated forecast following the H1 report. Target price £2.

Picked out three key paragraphs:

“Despite a pull back in GEO production this year, nearly a 25% rally in average gold prices is expected to drive annual revenues past the $100m mark which accounting for +50% EBITDA margins should translate into $57m in EBITDA (H1/19: $22m) and $33m in FCF”
“The latter together with the debt free balance sheet and ~$30m in cash as of H1/20 bodes well for sustainability of dividend payments as well as a potential for a special dividend in Q1/21 highlighted by the Board in Interim Results”
“As the Company at least matched its interim dividend, final dividend is likely to come in at 4.5c taking the total for the year to 9c/6% yield (at 110p price), one of the highest in the sector, with a potential special dividend to come on top of that”

https://www.uploadlibrary.com/SPAngel_JohnMeyer/AngloAsianMining_Earnings_Update_211020.pdf

29th Nov '20

Anglo Asian reported that they are set to produce between 68,000 and 72,000 ounces of gold equivalent this year and are still on track to achieve sales of over US$100mln this year to December.

This is quite amazing taking into account the coronavirus and a regional war which is now thankfully over.

Next year should be a big one for AAZ, with a year of full production, three dividend payments which should be around 10%, and I would imagine a good constant flow of news from the Irish JV with Conroy Gold. This JV is sure to be high impact and high profile exploration, the target here is potentially substantial, with Anglo having considerable potential upside in terms of percentage for a modest outflow during this stage.

Coming into play and very much not factored in will be the Vejnaly PSA and once the government of Azerbaijan give the ok to start the current PSA goes back to year zero, with the right to explore the contract area for up to five years and then develop and produce for 15 years with two five-year extensions allowed. The contract area covers approximately 300 square kilometres and contains the Vejnaly deposit which contains 6.5 tonnes of gold in the C1 and C2 categories.

Also next year a major development could be relating to the proactive interview where Bill Morgan stated a bit of non public news that they are in discussion and negotiation with the President of Azerbaijan over a new concession linking the Gosha and Gedabek assets, this is 50km, this would be major news, with the infrastructure and low cost production.

Come January and the Biden administration takes over, the emphasis will be on tackling covid and economic recovery, with a substantial the amount of economic stimulus most likely and not only in the US, we have seen last week the UK spending review and this will be replicated across Europe. 2021 should be a good one for gold and especially AAZ who are debt free and one of the lowest cost producers on the London Stock Exchange and in the lowest quartile, the free cash generation for this gold mining operation in Azerbaijan is substantial.

Anglo Asian Mining: a low cost and highly cash-generative gold miner

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